The LNG market is set to continue to grow substantially as new export terminals are scheduled to come online in the coming years in order to match the considerable natural gas production growth in the U.S. and Australia.

LNG traded globally has quadrupled in the past two decades and is expected to double in the next two decades, according to a recent Deloitte Center for Energy Solutions report, titled “LNG at the crossroads: Identifying key drivers and questions for an industry in flux.” In fact, growth could cause the market to reach critical mass and cause widespread changes in the LNG market.

The report observed seven key factors to helping the market reach its full potential including global economic growth:

  • Global economic growth –the LNG market is highly dependent on expansions in Europe and Southeast Asia. Any slowdown in those economies would have major impacts on the sector;
  • Energy efficiency – Deloitte also noted the amount of LNG in demand could be impacted as energy efficiency technologies improve;
  • Excess capacity –there are also concerns that the market could be oversaturated by the amount of projects coming online out of the U.S. and Australia with as few as one in 20 of announced projects being needed to meet demand through 2035;
  • Shipping costs –the widening of the Panama Canal and shortening trading distances may result in lower costs and improved gas price differentials;
  • New end users – LNG has typically been used as a power generation fuel, but as its use as a transportation fuel increases, it will result in greater demand, and;
  • Market liquidity – the number of changes sweeping the sector has seen several countries building both import and export terminals, which may result in further changes to the industry, including a shift from a contract dependent market to one focused on flexible spot markets.

These factors will help determine the direction of the global LNG market in the next 20 years, but despite several headwinds, Deloitte forecast that supply growth will continue over the next five years at an average of just under 8% each to 2020. There is the possibility of more supply coming into the market in the years between 2020 and 2035 from Iran, Canada and East Africa.

Demand growth is also expected to grow at a similar rate that will see supply and demand largely balanced over the next 10 to 20 years. However, Deloitte warned that these forecasts are heavily reliant on strong economic growth in Asia and Europe and demand could lag.

“While expectations of power generation growth in the developed and developing world differ, natural gas consumption growth will hinge on increasing underlying economic growth. The International Monetary Fund downgraded its 2015 global GDP growth outlook to 3.3% in July, a 0.2% reduction from its January outlook. While it is expected to accelerate in the near term, downward revisions notably in several of the BRICs (Brazil, Russia, India, China and South Africa) countries increase the risk of underperformance. With that said, the strong forecast LNG demand growth may need to be tempered, extending the current glut into next decade,” the report said.

Even with some murkiness in the near-term and short-term outlook, Deloitte stated that the long-term prospects for LNG are sound with growing supply and demand along with reduced costs for both supplies and technology.

The biggest uncertainty is how the market will shift with changing market dynamics with the possibility of an increased focus on liquefaction and transport at a fixed-fee with returns similar to those found in the utility sector or a more robust and liquid spot market created by increased supplies and flexible transport options.

“The long-term growth of the LNG industry will be dependent on deepening existing relationships with existing customers and expanding into new sectors, as well as finding more efficient ways to deliver products to wider markets at lower costs, all while attempting to keep supply and demand level,” the report said.

Frank Nieto can be reached at fnieto@hartenergy.com.